Tuesday, June 4, 2013

Angola’s economy rebounded strongly after experiencing slow growth due to oil and financial crises. Economic growth is expected to reach 8.2% in 2013, and 7.8% in 2014, driven by the expansion in the oil and gas sector and a public expenditure programme designed to encourage economic diversification.

The government has embarked on ambitious reforms to improve governance but the business environment remains challenging in terms of institutions and infrastructure settings. Nonetheless, the creation of the Sovereign Wealth Fund (SWF) will help insulate the economy from volatile oil prices.

The country has made significant strides in a variety of human development indicators, including poverty, health and education but still ranks low in the Human Development Index (HDI) at 148th place out of 187 countries surveyed and continues to provide only a rudimentary social safety net in the form of fuel and utility subsidies.

Overview

The Angolan economy rebounded strongly after several years of low growth attributable to the lingering effects of the global financial crisis. Real gross domestic product (GDP) grew at an estimated rate of 7.9% in 2012 (up from 3.9% in 2011) on account of the strong performance of the energy, transportation and construction sectors. The outlook for 2013 and 2014 remains positive, with economic growth projected to reach 8.2% and 7.8%, respectively. This will be driven by a combination of continued expansion in the oil and gas sector and a public expenditure programme designed to encourage economic diversification.

The implementation of the 2009-12 Stand-By Arrangement (SBA) programme of the International Monetary Fund (IMF) helped the country to regain macroeconomic stability, achieve an improved fiscal position, more comfortable level of international reserves, a stable exchange rate, and lower inflation. Furthermore, large domestic arrears were settled, and progress was made in strengthening fiscal transparency and accountability. However, the country continues to face massive developmental policy challenges, including the reduction of the dependency on oil, the diversification of the economy, the rebuilding of the economic and social infrastructure, the improvement of the institutional capacity, governance, public financial management systems, human development and living conditions of the population. These factors are constraining the pace of diversification of the economy and preventing small- and medium-sized enterprise (SME) development and job creation. Unemployment remains significant at about 25%, and the incidence of poverty remains high at 36.6% of the population.

Much of the country’s growth over the past decade can be directly attributed to the exploration of natural resources. Oil still accounts for nearly 80% of government revenue, 90% of exports and 47% of the country’s GDP. This makes the economy heavily dependent on oil revenues and vulnerable to oil price shocks. In an attempt to further diversify the economy, a 5 billion US dollars (USD) Sovereign Wealth Fund (Fundo Soberano de Angola) was created in October 2012. The fund was endorsed by the IMF, which had long advocated such an instrument to help insulate the economy from volatile oil prices. Nonetheless, the main challenge rests on the government’s ability to ensure transparency, accountability and equitable distribution of the country’s natural resource earnings. Moreover, as Angola continues to access non-concessional financing to meet its development needs and expands the exploration of its natural resources, the government will need to guarantee the preservation of the country’s debt sustainability, while ensuring greater transparency and accountability in the management of oil revenues.